With just about six weeks before 2022 comes to a close, retirees are gearing up for a new year of Social Security benefits, which usually see some change from year to year.
That's because there is typically some level of increase to benefits due to the Social Security Administration's (SSA) cost-of-living-adjustment (COLA). There are other changes that impact benefits and the program each year as well.
In 2023, retirees will see some of the most significant changes to the program in decades. Here's why.
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A huge COLA increase
The biggest, most noteworthy change to Social Security next year will be an 8.7% COLA increase to benefits in 2023, which is the largest increase in more than 40 years. That means starting in January, monthly benefits on average will increase by $140, or $1,680 annually.
Each year, the SSA increases benefits to account for a higher cost of living. The increase is based on inflation data during the third quarter of the year: July, August, and September. It is then compared to that same inflation data in the prior year, and the percentage difference determines the next year's COLA.
Clearly, the reason the COLA for next year is so high is to account for incredibly high levels of inflation in 2022, which makes retiree expenses from gas prices to groceries to transportation much higher. So the COLA increase won't solve every problem in the world, but it does put a dent into some of the higher prices retirees are dealing with.
Declining Medicare premiums
The other good news is that retirees are expected to see their Medicare premiums go down, which are the monthly payments they make for the federal health insurance program for people over the age of 65. Specifically, Medicare Part B premiums, which cover services like preventive care, medical equipment, ambulance services, and clinical research, are expected to decline in 2023.
Average Medicare Part B premiums shot up by roughly 15% this year, from $148.50 in 2021 to $170.10, largely because of a new Alzheimer's drug that Medicare had prepared to cover. But in 2023, Medicare Part B premiums will fall by about 3% to $164.90, due to lower-than-expected spending on Medicare items and drugs such as the Alzheimer's one. It's very rare to see a huge Social Security COLA coupled with a decline in Medicare Part B premiums, which are deducted from Social Security checks, so this is really a double positive.
Early filers can make more
Retirees can start collecting Social Security as early as 62, but there is a penalty for claiming benefits before full retirement age (FRA), which is 67 if you were born after 1960.
The way it works is that if you are under the FRA for the whole year, the SSA will deduct $1 from your monthly benefit checks for every $2 earned above the limit for the year. In 2022, that amount came out to $19,560. However, for the year in which you reach your FRA, the SSA takes $1 out of your benefit payments for every $3 you earn above the much higher limit of $51,960 in 2022.
Next year, those annual limits are increasing, which means early filers can keep more of their benefits. In 2023, the amount that people who don't reach their FRA next year is increasing to $21,240. The annual limit for retirees that do reach their FRA next year is going up to $56,520. Both of these are pretty hefty increases.
A game-changing year ahead
Next year is going to be full of big changes for retirees claiming Social Security, whether they are claiming their full benefits or starting to claim benefits before their FRA. Retirees collecting full benefits will see higher monthly checks and lower Medicare Part B premiums. Retirees not yet at their FRA will be able to keep hundreds, if not thousands, of more dollars in benefits before seeing deductions.
